Don't Call Me Webster

I thought this week I would do something unbelievably exciting and entertaining. It will make you stand up and cheer... or maybe that is just how I would feel about it :).

I have written a post that provides a small list of definitions that I think may be informative to those reading it. Definitions of terms you have likely heard before and would perhaps like to know what they really mean. So enough of the small talk, lets get to the excitement!

Definitions taken from "Canadian Investment Funds", Inventive Financial Sector Education 2007

Mutual Funds: Provide the investor of moderate means with the same advantages as the large capitalist, in diminishing the risk of investing by spreading the investment over a number of different stocks. Investors benefit from the services of trained investment professionals and even with just a small amount of savings can spread their investment over many different securities.

T-Bill: Short-term money market investments issued by the federal and provincial governments. They can easily be bought and sold at any time, and are guaranteed by the federal government. The minimum investment is usually $5,000. T-bills are subject to inflation risk and hold comparative returns to GICs.

Income Funds: Funds that provide a regular stream of income to the investor.

Growth Funds: Funds that provide long-term growth. These funds are riskier funds since they consist of equity-based investments.

Balanced Funds: A combination of income and growth. Considered moderate risk since there is a level of stability along with potential growth.

GDP: Gross Domestic Product is a measure of the total market value of all the final goods and services produced in an economy in a year. That means goods and services sold to their final users. It is measured in dollars.

Inflation: The rise in the general level of prices in an economy over a period of time.

Segregated Funds: The life insurance industry's equivalent to mutual funds. These funds are only available through life insurers. They differ from mutual funds in the that they can guarantee 75% to 100% of the capital invested after a period of time. They have the potential to provide protection from creditors. Provide 100% return on capital if investor dies, even if the fund has had a significant loss in value.

Tax Deductions: A tax deduction reduces the amount of income on which you pay taxes. It is deducted from your total income before the federal and provincial tax rates are applied. A common deduction is RRSP contributions.

Marginal Tax Rate: This is the rate of tax you pay on the last dollar earned. It is the highest rate at which earnings are taxed. In Ontario the highest marginal tax rate for 2009 is 46.41% on any earned income over $126,264. That rate is only applied to money at or above that, not below. If somebody tells you that they paid 46% on their income this year in taxes, that is incorrect.

CPP: Canadian Pension Plan is payable to all eligible Canadians except those who worked in Quebec. It is designed to replace about 25% of your pre-retirement earnings. How much you will receive will depend on when you start taking your CPP benefit.

This was just a small portion of some of the terms people ask me about daily. There are many, many more but I will limit myself to those for this post because it is a scientific fact that too much excitement expressed by an individual can actually cause birds to fly into sliding glass doors. Amazing I know.

If you have any other questions, or want further explanation, you know where I am! :).

Have a great week!

Matthew George